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Welcome to Taking Stock Summer 2018

There is no denying that 2017 was a horrible year both economically and politically. We dipped in and out of recession, we saw yet more late-night cabinet reshuffles and business confidence slumped to its lowest levels since the 1980s. On top of that, the persistent drought has left us Capetonians decidedly smelly as we prepare for Day Zero.

Where most of us would have hoped to start winding down, December instead served up a sequence of historic events that kept us on the edge of our seats right to the end. From SA’s downgrade to junk to US tax reforms, and from Steinhoff’s fall from grace to the nail-biting (and super closely contested) election of a new ANC president. Even the Zimbabwean regime change gripped our attention.

Asset class returns, however, were quite the opposite. The FTSE/JSE All Share Index (ALSI) had a cracking, albeit skewed, year, posting a return of 21%. If you were to strip out Naspers, which notched up a spectacular 72%, the ALSI posted a more pedestrian but still respectable 11%. The All Bond Index gained 10%, although half of that was realised in the last two weeks of the year. The MSCI All Country World Index climbed 24% in US dollar terms; SA listed property delivered a very decent 17% and even cash comfortably outperformed inflation with a return of 7.5%.

It would be tempting to extrapolate these dazzling returns into 2018, especially as we are all basking in the glow of the ANC election result and most likely feeling a lot more positive about the future of SA. However, as Philip Saunders and Iain Cunningham point out in their article, we believe there will be clear winners and losers this year. Those passively riding the wave are less likely to win than those with a more disciplined process able to exploit their competitive advantages.

You will need to guide your clients with conviction in this brave new world

Before we forget about 2017, I would like to share with you several big milestones that our business achieved that illustrate our commitment to long-term investment performance. Firstly, our flagship Investec Opportunity Fund celebrated its 20-year anniversary, and we are proud to state that – while in very good company – it ranks as the number one fund over two decades in the SA Multi Asset High Equity sector. The Investec Equity Fund also celebrated a big anniversary in 2017. Like the Investec Opportunity Fund, it is also ranked number one in its category (SA Equity General sector) – but over three decades! Finally, our global equity fund, the Investec Global Franchise Fund, celebrated its tenth year with a first quartile track record in the Morningstar Global Large-Cap Blend Equity sector**.

Now that the Investec Opportunity Fund has a 20-year track record, we have started doing some research on the benefits of active management beyond pure outperformance or alpha. We don’t believe that investors necessarily understand the true value of a strategy that by design reduces the risk in the portfolio. We believe this has particular application in the living annuity space. Our analysis suggests that 1% outperformance in a living annuity would allow you to take 90 basis points additional income, while 1% lower volatility allows you to take an additional 33 basis points of additional income. Consider the impact on an investor who can only afford to take 4% income – by investing in a fund that provides 1% more alpha and 1% lower volatility, you can draw an additional 1.2% additional income! We look forward to sharing more of our analysis and findings with you in due course.

In conclusion, while we are all feeling a lot better, remember that there is no free lunch. Sometimes the thrill of ‘the next big thing’ (Bitcoin, anyone?) could lead to ruin. 2017 was a watershed year and the world has changed dramatically and fundamentally. As advisors, you will need to guide your clients with conviction in this brave new world. Let’s do it together!

Winner of the Raging Bull Award for Best Offshore Management Company*

*The full details and basis of the award, affirmed on 01.02.18, are available on request

**Source: Morningstar, dates to 31.12.17. Since inception annualised performance for the Investec Opportunity and Equity funds (A share class) based on a lump sum investment, NAV-NAV, net of fees, gross income reinvested, in rands. Since inception performance for the Investec Global Franchise Fund (A Acc share class) is NAV based, (inclusive of all annual management fees but excluding any initial charges), gross income reinvested, in US dollars.

All information provided is product related, and is not intended to address the circumstances of any particular individual or entity. We are not acting and do not purport to act in any way as an advisor or in a fiduciary capacity. No one should act upon such information without appropriate professional advice after a thorough examination of a particular situation. This is not a recommendation to buy, sell or hold any particular security. Collective investment scheme funds are generally medium to long term investments and the manager, Investec Fund Managers SA (RF) (Pty) Ltd, gives no guarantee with respect to the capital or the return of the fund. Past performance is not necessarily a guide to future performance. The value of participatory interests (units) may go down as well as up. Funds are traded at ruling prices and can engage in borrowing, up to 10% of fund net asset value to bridge insufficient liquidity, and scrip lending. A schedule of charges, fees and advisor fees is available on request from the manager which is registered under the Collective Investment Schemes Control Act. Additional advisor fees may be paid and if so, are subject to the relevant FAIS disclosure requirements. Performance shown is that of the fund and individual investor performance may differ as a result of initial fees, actual investment date, date of any subsequent reinvestment and any dividend withholding tax. There are different fee classes of units on the fund and the information presented is for the most expensive class. Fluctuations or movements in exchange rates may cause the value of underlying international investments to go up or down. The fund is a sub-fund in the Investec Global Strategy Fund, 49 Avenue J.F. Kennedy, L-1855 Luxembourg, Grand Duchy of Luxembourg, and is approved under the Collective Investment Schemes Control Act. Additional information on the funds may be obtained, free of charge, at www.investecassetmanagement.com. The Manager, PO Box 1655, Cape Town, 8000, Tel: 0860 500 100. The scheme trustee is FirstRand Bank Limited, PO Box 7713, Johannesburg, 2000, Tel: (011) 282 1808. Investec Asset Management (Pty) Ltd (“Investec”) is an authorised financial services provider and a member of the Association for Savings and Investment SA (ASISA). Issued by Investec Asset Management, February 2018.